Tola Capital, investing in AI-enabled enterprise software, is the latest venture capital firm to announce its new fund, securing $230 million in capital commitments for its third fund, raising the largest amount to date.
It’s been a great couple of weeks for new VC funds. Tola joins firms like NXTP, Saviu Ventures, Kinterra Capital, Riverwood Capital, Twelve Below, SEVA, Ballistic Ventures, Founders Fund and Avra in raising funds with some significant capital behind them.
Despite that lengthy list, most VCs say this past year’s fundraising environment was a tough one. However, with the massive interest in all things artificial intelligence, it was still a good time to raise a new fund, Sheila Gulati, co-founder and managing director of Tola Capital, told TechCrunch.
Gulati started Tola Capital in 2010 with a group of experienced enterprise software operators just as cloud computing was gaining steam. Gulati herself previously led the enterprise IT strategy for Microsoft. During that she launched the Microsoft Azure cloud platform and ran the database and developer tools businesses.
“I thought nothing would excite me more than cloud computing, but I was wrong,” Gulati said. “AI is so big, so interesting, so game changing. The opportunities that we have to fully change the way of work is truly mind-blowing. People investing into this AI paradigm shift, especially early-stage, is truly unmatched.”
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Eyes on AI
Nothing has stirred up the topic of AI more in the past weeks than the chaos over at OpenAI. Many of Tola Capital’s portfolio companies build on GPT, and the firm proactively worked with them on contingency plans, Gulati said.
During that time, Gulati weighed in on the subject of OpenAI’s nonprofit governance model. She noted “how we do governance is suboptimal,” and the way decisions are made on boards can “kill innovation across the spectrum.” However, now that the matter is settled, Gulati believes OpenAI “is in a better place, which is great for the whole industry.”
Meanwhile, including the new fund, Tola Capital raised $688 million in total funds to date. It invests at the seed and early-stage levels in startups innovating the enterprise software industry with the use of AI. IDC forecasts the global AI software market to bring in nearly $792 billion in revenue in 2025.
The firm doesn’t invest at the foundational level of AI, but more on that next layer, what Gulati called the “enterprise scaffolding” of AI. For example, responsible AI, AI security and app layer AI.
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What Tola Capital is looking for in a startup
That thesis has proved successful. The firm’s previous two funds yielded over a dozen exits, including Clipchamp, a video software company acquired by Microsoft; OSIsoft, a data management company acquired by AVEVA; and Hybris, an e-commerce customer tool acquired by SAP.
Tola Capital III will invest in between 25 and 30 companies globally. Average check sizes will range from $1 million to $4 million for seed-stage companies and $5 million to $15 million for Series A and B. The firm has already deployed capital into eight companies, including Arcus, ESG Flo, FeatureByte, Fetcher, Holistic AI, Langsafe, Lumeus and Zilla.
The firm likes to invest in companies with “real invention.” Gulati describes that as having the right team, the invention, the total addressable market and then the culture of how they’re going to put all of that together into a company that is a talent attractor.
“We write deep and long hypotheses that we think should exist in the enterprise software market,” Gulati said. “Then we chase those things down. We want people who want to build massive game-changing businesses. They have that ambition, and we want to be on a journey with someone who’s not afraid to scale and run multibillion-dollar businesses.”
https://techcrunch.com/2023/11/26/what-startup-founders-need-to-know-about-ai-heading-into-2024/
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